Will Businesses Benefit from Recent U.S. Supreme Court Rulings?Published: March 12, 2008 in Knowledge@Emory
For years, the mantra of “states’ rights” has been a cornerstone of the Bush administration, and was reflected in the President’s choice of nominees for the U.S. Supreme Court. But perhaps the true issue never was states’ rights, say faculty at Emory University and its Goizueta Business School in the wake of recent high court rulings. Instead they suggest, the underlying agenda may have been an attempt to reign in regulatory agencies and benefit big business.
Among his other goals, George W. Bush tried to leave an imprint on the U.S. Supreme Court with the successful nominations of John G. Roberts, Jr. and Samuel Anthony Alito, Jr. And indeed, on the issue of states’ rights, the Supreme Court recently has taken some steps to limit federal power in the name of protecting the rights of the states, says Robert Schapiro, associate dean of faculty and professor of constitutional law at Emory’s School of Law.
“This limitation has taken several forms, including a narrow reading of Congress’s power under the Commerce Clause and a broad reading of state sovereign immunity,” says Schapiro.
A case decided in 2006, Gonzales v. Oregon, supports that view. In that six-to-three decision, the court denied U.S. Attorney General Alberto Gonzales the ability to overrule state laws that enabled individuals to use certain controlled substances to commit suicide. In Gonzales, the court emphasized the importance of protecting state interests, and interpreted federal law to avoid displacing state authority.
In its decision the Supreme Court cited Linder v. United States, a 1925 case that limited the federal government’s ability to regulate medical practice.
Do as They Say, Not as They Do?
But with three rulings handed down on February 20, Riegel v. Medtronic, Rowe v. New Hampshire Motor Transport Association, and Preston v. Ferrer, the nation’s highest court appears to be backtracking on its commitment to states’ rights. Although they focused on issues that included a contract dispute between an actor and a lawyer, and the ability to deliver cigarettes, the decisions strike at the heart of the concept of federalism, say Emory experts.
Businesses Score a Victory
“The court’s recent rulings represent a victory for business,” says William Buzbee, a professor of law and director of the Center on Federalism & Intersystemic Governance at Emory’s School of Law. “The act of preempting state law with federal law knocks out the regulatory power of states. The specific issues considered in Gonzales v. Oregon decision differ from the three decisions handed down in February 2008. The earlier ruling defers to state law, while the latter gives primacy to federal law. This could indicate the general direction in which a new majority of the Supreme Court justices is heading.”
The Preston case focused on a dispute between Alex Ferrer, a former Florida judge who went on to arbitrate disputes on the Fox Channel television show “Judge Alex,” and a lawyer, Arnold Preston, who worked as Ferrer’s personal manager. The contract between the two required disagreements to be settled under rules set by the American Arbitration Association (AAA). But when Preston invoked the provision to get fees he was allegedly due under the contract, Ferrer instead requested a determination from the California Labor Commissioner that the contract was invalid and unenforceable under California’s Talent Agencies Act (TAA), claiming Preston had acted as a talent agent without the required license.
Although the Labor Commissioner’s hearing officer denied Ferrer’s motion, he filed suit in state court seeking to overturn the arbitration process.
After a California Appellate panel ruled for Ferrer, Preston asked the Supreme Court to decide if the Federal Arbitration Act (FAA), which overrides state statutes that initially refer certain state-law controversies to a judicial forum, also overrides state statutes that initially refer certain disputes to an administrative agency.
Historically, businesses have favored agreements that call for disputes to be submitted to binding arbitration, which is typically faster and less expensive than going to court. On the other hand, unions and consumer advocates frequently say binding arbitration agreements weaken the ability of the government and other organizations to protect “vulnerable” parties.
In its decision the Supreme Court said, “…when parties agree to arbitrate all questions arising under a contract, state laws lodging primary jurisdiction in another forum, whether judicial or administrative, are superseded by the FAA.”
The issue in the Rowe case focused on a Maine law requiring state-licensed tobacco shippers to utilize delivery companies that confirm the shipment’s recipient is legally old enough to purchase tobacco products. Further, it said a delivery carrier would be deemed to know that a package contains tobacco if it is marked as originating from a Maine-licensed tobacco retailer or if it is received from someone whose name appears on an official list of un-licensed tobacco retailers that are distributed to package-delivery companies.
In ruling that federal law pre-empts the two state-law provisions at issue, the high court noted that a provision of the Federal Aviation Administration Authorization Act of 1994 forbids states to “enact or enforce a law…related to a price, route, or service of any motor carrier.” The Maine law, added the court, aims “directly at the carriage of goods, a commercial field where carriage by commercial motor vehicles plays a major role…”
Finally, Riegel v. Medtronic focused on a suit brought against Medtronic Inc., a Minneapolis maker of medical devices. The lawsuit was filed after a catheter, made by the company and approved by the federal Food and Drug Administration (FDA) ruptured in a patient’s coronary artery during heart surgery. The patient later died and his wife alleged that the device was designed, labeled, and manufactured in a manner giving rise to a common law claim for damages under state law.
The U.S. Supreme Court agreed with lower courts and ruled in favor of Medtronics. The high court noted that the federal Medical Device Amendments of 1976 (MDA) created a “scheme of federal safety oversight [the FDA] for medical devices while sweeping back state oversight schemes.”
The Tide Turns with a Medical-Device Ruling
Of the three rulings, the Riegel case is perhaps the most significant in its impact on federalism, says Buzbee, who is the editor and a contributor for the forthcoming Cambridge University Press book titled Preemption Choice: The Theory, Law and Reality of Federalism’s Core Question.
“The case was important on its own merits, but more broadly it was important because FDA approval is often used by drug companies and others as a defense against lawsuits,” he says. “It is significant that the court used sweeping language about the preemptive power of federal law and agency actions setting ‘requirements’ in the Riegel decision, instead of narrowing its terminology to reflect the specifics of the individual case.”
This intention was reflected in the fact that the court did not note the “long-standing presumption against pre-empting state law,” he adds. “The court did not cite the presumption at all, which is unusual. The omission of this usual presumption may send a signal about the direction of its preemption jurisprudence.”
Other aspects of the decision are also worrisome, says Buzbee.
“While a court may defer to a federal agency’s ruling, there are limits, particularly if the agency is seen to be ‘trampling’ on states’ rights,” he explains. “One would have hoped that the court would have mentioned an interpretive presumption against federal agencies asserting power to preempt in the Riegel decision, but the justices chose not to do so. Again, this could indicate that the court will allow federal agencies greater latitude when it comes to preempting consumer-friendly local legislation or jury verdicts.”
Buzbee further noted that “the FDA, like many agencies, is often overworked and under funded, leading to delays or failure to monitor safety of products after approval.”
He notes that “the possibility of common law liability has created an important incentive for manufacturers to monitor product safety, even if the FDA does not act, but that Riegel undercuts such incentives.”
This decision is a not only a very broad interpretation of federal preemption of state laws, but it also represents a curtailment of states’ police powers, says Allison Burdette, an assistant professor in the practice of business law at Emory Goizueta Business School.
“The Supreme Court majority's argument is that approval by the FDA of a medical device preempts a state product liability lawsuit if that device fails or causes injury,” she says. “States have the power to act in ways that provide safety to their citizens, and allowing civil lawsuits for defective products is one way of achieving this.”
Referring to the state action as "back door regulation," Burdette notes that the FDA provides "front door regulation" by requiring manufacturers to meet various procedural and substantive requirements to gain the federal agency’s product approval.
“But given recent high-profile examples of both new drugs that fail and medical devices that have proven to be unduly dangerous, this gatekeeper regulation is clearly not enough,” she says. “Furthermore, this huge curtailment of states’ powers very much contradicts the position, often stated by many of these Justices, in favor of greater federalism, or allowing the states more freedom to operate as a sovereign on a more equal footing with the federal government. This decision is certainly a blow to states’ powers.”
In fact the court's February decisions are consistent with two modes of thinking—an anti-regulatory attitude and a dualist form of federalism—according to Professor Schapiro.
From the federalism perspective, he says, the decisions indicate the court views itself as having an important role in drawing boundaries between state and federal areas of regulation.
"The court limits regulatory overlap by striking down both state and federal regulations that cross the boundary," observes Schapiro, who addresses similar issues in a forthcoming book, Polyphonic Federalism: How a Federal System Protects Fundamental Rights, which is to be published by the University of Chicago Press.
The problem, he adds, is that given the preponderance of overlapping federal and state regulation, "the high court's rulings limit the ability of both the federal government and the states to protect health and safety in important areas."
“The Court’s recent decisions broadly construe federal preemption and the dormant commerce clause,” Schapiro says. “And I criticize the Court for enforcing this ‘dualist’ notion of federalism.”